Capitalism Shines for this Apple

This article is featured in the fall edition of our 360 Insights Quarterly Client Newsletter.

A significant amount of planning and research goes into managing a person’s wealth. Your Financial Advisor leverages extensive academic research, additional outside experts, and powerful tools to build efficient portfolios, select proper funds, and implement portfolios in an effective way. And your Advisor uses sophisticated planning tools to help determine how to reach goals, structure your accounts, and understand the impact of taxes.

Yet, as much as your financial professionals try to analyze the investment and planning approach, there is some part of your plan that is largely out of their hands. That part is growth. We all need our investments to grow to help us reach our goals. While it is reasonable to assume that we should earn something from our investments, what’s behind that assumption is the powerful force of capitalism.

American philosopher Ralph Waldo Emerson, who lived during the industrial revolution, was a big fan of capitalism. Seeing the new ideas and the wealth it created led him to write the following: “Doing well is the result of doing good. That’s what capitalism is all about.”

We see this in today’s digital revolution. The advances in technology, medicine, and information have been mindboggling. We also know the wealth that these transformative ideas have generated, and the latest example of this is the recent milestone that Apple Inc. crossed.

Apple became the first publicly traded company to be worth one trillion dollars. It took 38 years for the company to grow from $1 billion to $1 trillion. (It was soon followed by Amazon, which grew to $1 trillion in 21 years)1.

Apple created or significantly enhanced products that help us learn more, do our jobs more efficiently, and make connecting with each other simple. It helped mainstream the personal computer with the Macintosh, changed the way we listen to music with the iPod, and it changed the way we communicate with the iPhone.

Apple also had its share of challenges, including product failures, poor business decisions, and management uncertainty. And these challenges were reflected in its valuation over the years. Apple experienced 12 separate declines of 20% or more, and four of those declines were greater than 60%. For comparison, the U.S. stock market, as measured by the S&P 500 Index, declined greater than 20% only three times and never declined greater than 60% during that period.

But the capitalist spirit and the innovation the company embraced helped it persist and reach its recent highs. To use Emerson’s expression, Apple did a lot of good and the stock has done well.

This is just one of thousands of examples of capitalism at work. Our point isn’t to say that we should go out and buy Apple stock (the reality is that Apple is already most likely in our portfolios) or that $1 trillion is too big or too small of a number (it really is just a number, and just like a stock market reaching an all-time high, that makes for an impressive headline).

Our point is that there is a powerful force that is driving stocks higher, and there is a reason that stocks tend to go up more often than they go down. And that reason is capitalism; it is the fuel that powers every company and their stocks. And while we can’t control it, we can harness its long-term potential to help grow your portfolio.

Securities listed are for illustrative purposes only and are not to be viewed as investment recommendations. They are not representative of any Loring Ward portfolio, and it should not be assumed that investments in any of the securities listed were or will prove to be profitable.
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Jonathan Scheid, CFA, AIF

Vice President, Portfolio Strategy & Education, Loring Ward

With over 20 years of experience working with advisors and their clients, Jonathan enjoys sharing interesting perspectives on a wide range of investment and economic topics. He is a key leader on the Portfolio Strategy & Research team focused on helping advisors and investors understand the merits of our investment philosophy.

The views expressed represent the opinions of the author which are subject to change and are not intended as a forecast or guarantee of future results. Stated information is provided for informational purposes only, and should not be perceived as investment advice or a recommendation for any security. While Loring Ward believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and the author's view as of the time of these statements. Actual results, performance or events may differ materially from those expressed or implied in such statements. past performance of various investment strategies, sectors, vehicles, and indices are not indicative of future results.